3 Great Things About the TFSA for Millennials

3 Great Things About the TFSA for Millennials

The tax-free savings account (TFSA) turned 11 this year. It has proven hugely popular for some very good reasons. This account is the darling of the over-55 crowd, but there are a lot of advantages for millennials. Knowing how to use it to best advantage.

1. It’s about saving—more than cash
A TFSA allows you to stash cash for all sorts of reasons—an emergency fund, down payment on your dream home, retirement, etc. But simply using it to save cash is robbing yourself of some great ways to build wealth. That’s not its superpower.

The interest return on simple cash makes it look like a pretty dismal savings vehicle. However, it shines as a tax shelter for the investments—such as bonds, stocks, mutual funds, exchange-traded funds, options, etc.—which can be included. The tax-free compounding that comes from reinvesting any returns produced through your investment vehicles is where you can maximize growth.

No capital gains, interest income, or dividend taxes. So, the real power of this account comes from investments other than cash.

2. You can’t lose your contribution room
Are you just now looking into this savings option? Ok, so you may have missed out on some investment growth, but your contribution room remains. For example: in 2009, if you were over the age of 18 (that’s the age you must be to open a TFSA), by this year your contribution room will amount to $69,500. This year’s allowance is $6,000.

As long as you are a resident of Canada (with a valid social insurance number), your unused contribution room continues to grow annually. That may not mean much to you, today. But many Canadians will reap a mid-life windfall such as an inheritance, downsizing a home, severance, or insurance payouts.

Sock those away in a TFSA and you can help shield their future growth from income tax.

3. The account remains liquid
Another key feature of the TFSA is that it lets you take money out—with no taxes or penalties. That’s the big difference between a TFSA and an RRSP. Money in a TFSA is after-tax funds.

Unlike a guaranteed investment certificate, the money is not locked away for a specified period. You can hold a small amount of cash in it and access your money at any time. This offers you peace of mind.

To learn more about how the TFSA can enhance your wealth building strategy, give us a call.

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